Prediction: 2 stocks that will be worth more than Nvidia in 5 years

Semiconductor designer Nvidia (NVDA 0.39%) We are now in a golden age. The company has cornered the market for high-end accelerator chips used to train and run modern artificial intelligence (AI) systems. With a market capitalization of $3.4 trillion as of December 23, 2024, NVIDIA is currently the second most valuable stock on the market after Apple with $3.9 trillion (check notes).

Nvidia could soar even more as the generative AI boom continues, but things may change in a few years. Regardless of whether Nvidia’s stock price doubles or falls in two or three years, there’s a good chance it will return to current price levels, or even lower, by the end of the decade. On the other hand, I have high hopes for Alphabet, a member of the “Magnificent Seven” (GOOG 0.81%) (Google 0.76%) and amazon (AMZN 1.77%) We aim to build shareholder value in a more sustainable and predictable manner and exceed Nvidia’s market value by the end of December 2029.

How Amazon and Alphabet build shareholder value

There’s no disputing the idea that e-commerce pioneer Amazon and Google’s parent company Alphabet should increase in value over time.

These innovators have the talent to change with the times, sometimes creating entirely new business concepts and ushering in what’s coming next. Amazon can’t say it invented cloud computing or same-day delivery services, but it built a successful business around them before anyone else. Similarly, the company formerly known as Google embraced video-based social media and smartphones before they were cool. YouTube and Android are still the leaders in these areas after all these years.

Their target market continues to change, usually due to macroeconomic changes. The coronavirus pandemic has increased the business value of online retail stores and cloud computing solutions. Alphabet and Amazon soared as a result.

While the digital boom fizzled out as the health crisis subsided and people slowly returned to the office, these tech giants simply evolved. Both companies are heavyweights in the AI ​​market, and Amazon’s overzealous delivery infrastructure upgrades give it a unique competitive advantage during e-commerce downturns, while Alphabet has generated a plethora of alternative business ideas. I’m looking for something.

Therefore, I expect their growth story to develop in the near future. Currently, the average analyst expects Alphabet’s earnings to grow at a compound annual growth rate (CAGR) of 16% over the next five years. Amazon’s final CAGR estimate for the same period is 18%.

If Wall Street’s growth forecasts come true, the company’s revenue (and market value) could more than double by the end of 2029. In other words, Amazon and Alphabet could be worth about $5 trillion over five years.

Nvidia’s rapid growth may not last long

This is completely normal. Amazon and Alphabet should gain value over the long term, but probably a little faster than the S&P 500. (^GSPC 1.10%) Market indices and other trackers that show the overall health of the stock market. The sky is blue and the water is wet. Let’s shoot a movie at 11 o’clock!

But why do I expect Nvidia’s rising star to be overshadowed over the same period of time?

Simply put, I think years of market-beating AI chip sales are already reflected in NVIDIA’s current stock price. It has recently become a highly speculative stock, trading at 30 times sales and 54 times sales. To rise further from this high point, Nvidia will need to maintain a dominant share of the AI ​​chip market, deliver large numbers of units to customers, and maintain very favorable chip prices.

Obstacles to Nvidia’s future dominance

And along the way, there are also serious challenges to overcome. Factors to consider are:

Competitors such as Advanced Micro Devices (AMD 1.36%) and Broadcom (AVGO 3.15%) Competitive AI accelerators are already available. And did you know that Alphabet and Amazon have also developed their own AI chips that fit specific software requirements?Nvidia’s iron grip on this market may loosen over time. Nvidia relies on third-party manufacturing services to turn semiconductor blueprints into physical products. So are AMD, Broadcom, and pretty much the entire chip space. Because the company competes for limited production capacity and materials, it may not be able to fulfill all orders on time. Remember the chip manufacturing shortage from 2020 to 2023? Something like this could happen again, hurting Nvidia’s high market value. These two challenges are likely to add price pressure to the AI ​​chip market. Nvidia’s 76% gross profit margin suggests a monopoly, and the actual market should be healthier than that.

Therefore, NVIDIA could continue to rise speculatively for another year or two. Maybe, just maybe, you can think about it. But you know what famous investor Benjamin Graham said about the stock market: The stock market is a popularity contest in the short term and a weighing machine in the long term.

You’re looking at Nvidia’s “popularity” phase right now, but you don’t know when it will reach its peak. As outlined here, the “true value” phase can vary widely. Alphabet and Amazon, on the other hand, seem to me to be very safe long-term investments with predictable stock price appreciation over the next few years.